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Executive Summary

Child welfare agencies provide a safety net for abused and neglected children and children at risk of abuse and neglect. Federal, state, and local government funding supports all services provided by the state child welfare agencies. However, the amount of funding from federal, state, or local sources varies greatly by state and can be affected by both national and state-specific events. Our findings document the amount states spent on child welfare activities in state fiscal year (SFY) 2002, the funding sources they used, how funds were used, and how funding has shifted since federal welfare reform and ASFA.

Based on a consistent definition of child welfare funding from SFY 1996, child welfare spending continued to increase through SFY 2002. States spent $22.2 billion in federal, state, and local funds in SFY 2002. This total represents an 8 percent ($1.5 billion) increase since SFY 2000 and a 34 percent ($5.3 billion) increase since SFY 1996 based on analysis of 46 states.

All components of child welfare fundingfederal, state, and localincreased spending between SFY 2000 and SFY 2002. Federal spending for child welfare activities increased by 7 percent ($748 million), state spending by 7 percent ($538 million), and local spending by 15 percent ($341 million). Federal funds make up more than half of the expenditures for child welfare
activities. Based on analysis of 49 states, federal funds accounted for 51 percent of total spending, state funds for 37 percent, and local funds for 12 percent.

State and local funding increased despite state fiscal pressures in SFY 2002. However, expenditures in SFY 2002 were just beginning to be affected by the downturn in the economy. It will be important to assess whether the increases were sustained in SFY 2004 when state budget pressures
were greater, as indicated in other studies.

Spending on adoption continued to increase. Of all the uses (out-of-home placements, adoptions, administration, and other services), spending on adoption appears to have increased the most between SFY 2000 and SFY 2002, increasing by $708 million. An increase in adoption spending was expected, given the mandates of ASFA and the subsequent movement of children from foster care to adoption or subsidized guardianship. Adoption costs are expected to continue to increase as the cumulative number of children receiving adoption subsidies increases.

Nondedicated funding sourcesTANF, SSBG, and Medicaidaccounted for half of total spending on out-of-home placements. Despite the fact that title IV-E is an open-ended entitlement dedicated to reimbursing states for the cost of foster care for eligible children, the use of TANF, SSBG, and Medicaid to cover the costs of administration, support services, or room and board associated with children in out-of-home placements exceeds that of title IV-E. This may be attributed to declining eligibility for title IV-E reimbursement because of its link to 1996 income levels, the block grant feature of TANF and SSBG that does not require a state match, or the use of Medicaid to serve children with more physical, mental, and behavioral health needs.

Spending on child welfare activities varied considerably among the states. While total child welfare spending increased nationally, 13 states saw a decline in total spending. In addition, 16 states saw declines in federal spending, 14 states saw declines in state spending, and 5 states saw declines in local spending. Similarly, although TANF and Medicaid accounted for nearly all of the federal increase nationally, TANF spending declined in 17 states and Medicaid spending declined in 12 states.

The significant variation we observe across states, as well as the variation among states over time, appears to be the result of a complex array of state-specific issues. While caseload differences are a factor in explaining the variation, they are not the only and are probably not the main influence on expenditures. The variation we observe in states' financing of child welfare apparently reflects factors including, but not limited to, caseload size differences, state priorities and policy choices, policy changes, court decisions and mandates, and efforts to maximize federal resources.

If we have learned anything from our analysis of child welfare spending over the past six years, it is that states' financing of child welfare is prone to significant changes over relatively short periods. Several factors make future financing of child welfare activities uncertain, including changes in state economic conditions, congressional proposals to alter federal financing, and potential restrictions on child welfare agencies' use of nondedicated federal funds. Caseload size and changes in caseloads do not seem directly related to the uncertainty.

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